Molton Waste Removal now only collects garbage from private residences (houses) because it does not own trucks with the capability of lifting and emptying garbage dumpsters used by apartment complexes. Molton currently is reassessing this decision. To lease, license, insure, and get the various permits to operate a refuse collection truck with a fork-lift capable of emptying a dumpster costs $54,000 per month. This includes the cost of the driver, fuel, and oil. Molton prices each apartment complex based on the number of apartment units in the complex based on a standard of 25 units. The following table indicates how Molton expects the number of apartment customers to vary with the price (per 25 apartment units)

Number of Customers ........................ Price per Month
100 .................................................................. 1,560
105 .................................................................. 1,538
110 .................................................................. 1,516
115 .................................................................. 1,494
120 .................................................................. 1,472
125 .................................................................. 1,450
130 .................................................................. 1,428
135 .................................................................. 1,406
140 .................................................................. 1,384
145 .................................................................. 1,362

(Table is based on the demand curve: P = 2000 – 4.4Q.)
In other words, if Molton wants 100 apartment customers, it will set the price at $1,560 per 25 units per month. If an apartment has 50 units, then at this price point, this apartment complex pays $3,120 (2 × $1,560) per month. Since garbage is collected once per week at each apartment complex, the single truck has the capacity to handle up to 145 25-unit apartment complexes per month.

Molton uses a landfill in the county to dispose of the waste. The landfill charges $1,750 per truck load of garbage the size Molton would acquire. Molton estimates that 10 apartment complexes (each with 25 units) will fill the truck once and will require dumping at the landfill. And, Molton will remove the refuse at each 25-unit complex exactly four times per month. Each 25-unit apartment complex requires Molton to lease a dumpster that can be lifted and emptied by its fork-lift–equipped garbage truck. Molton can lease these dumpsters for $200 per month per 25-unit dumpster.

Required:

a. What is Molton’s monthly fixed cost of adding an apartment-complex refuse disposal service to its existing residential services? And what is Molton’s monthly variable cost of servicing each 25-unit apartment complex?

b. Given the demand curve Molton expects to face in the apartment refuse collection business, what price should it choose to maximize profits, and how much profit will it make at this price?

c. Based on the profit maximizing price computed in part (b), what is the break-even point at this price?

d. After preparing the analysis in part (b), Molton discovers it has forgotten to include an additional cost of $72,000 per year to cover the cost of the new person needed to contact potential apartment complexes, sign contracts for waste removal, and manage the apartment refuse collection business. After incorporating the $72,000 cost of the manager to market and manage the apartment collection business, how do your answers to parts (b) and (c) change? In other words, what price should Molton set to maximize profits, how much profit will Molton make at this price, and what is the break-even point at this new price?

e. Discuss why your answers in parts (a) and (c) are either the same or differ from your answers in part (d).